Money and financing
What Is a Good Car Loan Interest Rate, and Why Loan Length Matters
How car loan rates work in Canada, why an 84-month loan costs more than it looks, and how to tell whether the rate you are offered is fair.
The interest rate and the length of the loan decide how much the car really costs you. The good news is that both are easy to understand once you see the numbers side by side.
Where the rate comes from
Manufacturer promotional rates. On new cars, brands often offer subsidised rates through their own finance company, sometimes as low as 0% on certain models and terms. These change every month or two.
Bank, credit union, or dealer-arranged financing. Based on the lender's standard rates and your credit. These are usually higher than promotional rates.
Used cars almost always carry higher rates than new ones.
The rate is shown as an APR. The best way to know if yours is fair is to compare it with the manufacturer's current offer for the same model and term, and with a pre-approval from your own bank.
Why loan length matters
Here is the same $35,000 loan at different rates and terms:
| Rate | Term | Monthly payment | Total interest |
|---|---|---|---|
| 0% | 60 months | $583 | $0 |
| 4.99% | 60 months | $660 | $4,620 |
| 6.99% | 60 months | $693 | $6,573 |
| 6.99% | 84 months | $528 | $9,358 |
| 8.99% | 84 months | $563 | $12,287 |
Stretching the 6.99% loan from 60 to 84 months drops the payment by about $165 a month, but costs almost $2,800 more in interest. It also means you owe more than the car is worth for longer, which can cause negative equity if you trade in early.
How to get a better rate
- Check the manufacturer's current offers for your model before you visit.
- Get pre-approved by your bank or credit union so you have a number to compare.
- Know your credit score. A better score gets you better rates.
- Consider a shorter term if the payment still fits your budget.
- Ask about cash incentives vs. low rates. Sometimes a brand offers either a rebate or a low rate. Our loan calculator helps you compare.
Keep learning
Leasing vs. Financing a Car in Canada: A Guide for First-Time Buyers
If you're buying your first car in Canada, one of the biggest questions you'll face is whether to lease or finance. This guide breaks down both options so you can make the right move.
What a New Car Really Costs in B.C.: The Out-the-Door Price Explained
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AWD vs. FWD vs. 4WD: Do You Really Need AWD in Canada?
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